Quoted By:
>A sudden sharp rise in US tariffs, similar to the Hawley-Smoot Tariff Act of 1930, would likely cause foreign bank shares to decline faster than the broader market for several key reasons:
>Direct exposure to trade finance - Foreign banks often have significant operations in financing international trade through loans, letters of credit, and other instruments. A sudden tariff shock would immediately reduce trade volumes and this revenue stream.
>Loan portfolio vulnerability - These banks typically have substantial loan exposure to export-oriented businesses that would face immediate stress if US markets become less accessible.
>Economic contagion effects - Banks serve as economic bellwethers, and investors often sell bank stocks first when anticipating broader economic downturns in trade-dependent economies.
>Currency volatility - Trade tensions frequently trigger currency devaluations and volatility, directly impacting foreign banks' balance sheets and capital reserves.
>Higher leverage - Banks generally operate with higher leverage ratios than many other sectors, amplifying negative impacts when their asset quality deteriorates.
>Interconnected risk - The global banking system's interconnectedness means problems can cascade quickly through international financial networks.
>This pattern was observable historically during trade tensions, where foreign financial institutions typically experience disproportionate stock price declines compared to domestic US banks or non-financial sectors.
